Vodafone agrees to buy Spain's Ono for $10 billion (Update)

Mar 17, 2014 by Danica Kirka

British telecommunications company Vodafone agreed on Monday to buy Spain's Ono for 7.2 billion euros ($10 billion) as it seeks to expand operations across Europe.

The deal is part of a broader trend of mergers and takeovers in Europe, where the mobile industry is split among some 150 major operators crisscrossing national lines—compared to just four in the United States.

Grupo Corporativo Ono S.A. provides phone, mobile and television services to 1.9 million customers and has the largest "next-generation network" in Spain, reaching 7.2 million homes, or 41 percent of the country. Vodafone says Ono has abundant spare capacity, giving it space to expand.

"Demand for unified communications products and services has increased significantly over the last few years in Spain, and this transaction - together with our fiber-to-the-home build program - will accelerate our ability to offer best-in-class propositions in the Spanish market," Vodafone Chief Executive Vittorio Colao said in a statement.

Vodafone is flush with cash after agreeing last year to sell its stake in a U.S. venture to Verizon for $130 billion in cash and stock—one of the biggest deals in corporate history.

Monday's deal marks Vodafone's second major acquisition in Europe, after its purchase of Kabel Deutschland last year. Vodafone was attracted by Kabel Deutschland's extensive cable network, which it could use to expand its fixed-line, broadband and television business.

The deal allows Vodafone to accelerate its expansion in Europe, save costs in its Spanish operations and take advantage of the rapid increase in the adoption of unified communications products and services in the Spanish market. Ono has invested approximately 7 billion euros in its network since 1998.

Analysts were divided over the potential benefits of the deal.

"Spain has been the source of losses for several quarters, and bundling Vodafone's mobile services with popular broadband and cable TV offerings is the only realistic choice to drive up customer retention, new subscribers and per-customer revenues," said Jason Sumner, technology analyst at The Economist Intelligence Unit.

But James Barford, an analyst at the London-based firm Enders Analysis, said the price was high and was skeptical that the focus on "quad play"—the industry term for bundling phone, broadband, mobile and TV services—will pay off.

"It's a little bit the tail wagging the dog in terms of justifying such a high cost," he said. "There's an assumption that 'quad play' is essential, but there really isn't evidence that consumers have a strong desire to buy the fixed line and the mobile services together."

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